Blockbuster Sales Fall 1.4%

Blockbuster Inc., the world's largest video-store chain, said Tuesday that sales declined for the first time in at least four years as the company rented out fewer movies. Its shares fell 11%.

Revenue slipped 1.4% in the third quarter to $1.38 billion, the Dallas-based company said, disappointing analysts who expected sales to rise to $1.48 billion, the average estimate in a survey by Thomson First Call.

Net income climbed 25% to $63.7 million, or 35 cents a share, from $51 million, or 28 cents, a year earlier, the company said. It had been expected to report per-share profit of 32 cents, according to Thomson.

Shares of Blockbuster fell $2.28 to $19.22 on the New York Stock Exchange.

DVDs accounted for 60% of Blockbuster's rentals in the quarter, up from 42% a year earlier. The transition has pitted Blockbuster against Wal-Mart Stores Inc. and Netflix Inc., which let consumers rent DVDs through the mail and keep them as long as they like. Netflix's sales grew 77% in the recent quarter.

"There are definite competitive threats," said David Joyce, an analyst with Guzman & Co.

Blockbuster pays less to buy DVDs than it does to buy videotapes. That helped Blockbuster's rental margins rise to 72% from 66% a year ago and contributed to an increase in the company's profit.

Sales at stores open at least a year fell 7.5%, Blockbuster said. The quarter's DVD releases didn't appeal to consumers, Blockbuster executives said.

"September was one of the toughest for the industry in several years," Chief Financial Officer Larry Zine said. "Titles didn't perform well for rental or retail."

Blockbuster's sales had risen in every quarter since the company sold its stock to the public in 1999.

With DVD rentals rising, videotape rentals slipped to 30% of sales from 48%, Blockbuster said. Game rentals accounted for the rest. Blockbuster also sells DVDs and videotapes.

Videotape sales "are pretty much dead," Blockbuster Chief Executive John Antioco said. Blockbuster expects DVDs to account for 75% of the company's rentals and 90% of its movie sales next year, he said.